QUESTION: I am about to sell a property I purchased in 1998. It is my
principal residence but 80% of the space has been rented to residential
tenants. I have consistently claimed 80% the expenses against the rental
income.
In order to qualify for financing the property must be upgraded - based on a
report commissioned by the local bank when I purchased the property. The
bank now also requires foundation certification to be in place in order to
approve a mortgage. The cost of these upgrades will be about $80000. Can I
deduct that sum from the capital gain which will accrue on the sale of the
house? This sum exceeds the net income I expect to have this year.
A second question regarding the above expenses - if the house does not sell
this year can I deduct them from capital gains realised when I do sell the
house?
Thank you in advance for your response. Your expert opinion is much
appreciated.
------------------------------------------
david ingram replies:
Unless you have been depreciating the building the house is not taxable in
my opinion.
The following tax case speaks to the matter.
In 1986, Fedel Saccomanno won the sale of his home as a tax free capital
gain as his principal residence. He had bought a triplex with two units
rented out, and lived in the third unit with his wife on weekends when he
was not teaching at the University of Waterloo. When he did not get tenure
at Waterloo, and sold the property, DNR tried to tax two-thirds of the
profits. Judge Taylor ruled that the entire triplex was tax free, giving
credence to my claim in my Investment Guide. In the Investment Guide, I
suggest that people with duplexes and triplexes should claim the whole
building tax free in spite of the fact that Bulletins IT 120R2 and R3 stated
that half a duplex and two thirds of a triplex would be taxable.
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